By Chikako Mogi

Tokyo - Asian shares hit a 16-month high on Wednesday, led by surging Chinese equities on hopes for stable growth, but concerns over whether US lawmakers can break a budget impasse before year-end to avert a possible economic slump kept optimism in check.

European shares were expected to rise, with financial spreadbetters predicting London's FTSE 100, Paris's CAC-40 and Frankfurt's DAX to open as much as 1 percent higher. A 0.3 percent gain in US stock futures hinted at a similarly firm Wall Street open.

MSCI's broadest index of Asia-Pacific shares outside Japan advanced 0.8 percent, gaining momentum as Shanghai shares soared nearly 3 percent to reclaim the 2,000-point level after slumping to near four-year lows last week.

Chinese shares were boosted by remarks late on Tuesday from new Communist Party chief Xi Jinping, who said that the government aimed to stabilise exports and make policies more targeted and effective.

“We are due for a short-term bounce anyway. Xi's comments suggest he thinks the Chinese economy has bottomed and inflation is not going to be a big problem,” said Hong Hao, chief equity strategist at Bank of Communications International Securities.

Hong Kong shares jumped 1.5 percent, Australian shares rose 0.4 percent and Japan's Nikkei stock average erased earlier losses to end up 0.4 percent at a seven-month closing high.

“China and the yen are the main drivers,” a trader at a foreign bank said.

The HSBC Purchasing Managers Index for China's services sector on Wednesday showed the barometer slipped to 52.1 in November from October's 53.5, but recent indicators from factory output to retail sales and investment reflected positive effects from Beijing's pro-growth policies.

Growth prospects for China, the world's second-largest economy, and a fiscal crisis facing the world's top economy remain underlining market themes. However, daily flows are increasingly being dictated by year-end position reshuffling, with price swings magnified by thinning activity ahead of the holidays, traders said. - Reuters